How to Write a PESTLE Analysis?

PESTLE is a widely used analysis that focuses on the essential external elements that have a strong influence over an organization. Political, Economic, Sociological, Technological, Legal and Environmental, the first letter of these six words makes the acronym PATLE. These factors can be implemented in different scenes which further help the managers to make effective decisions.

What is PESTLE Analysis?

The shorter version of PESTLE is called the PEST analysis. Both of them are some essential principles used by professionals for marketing purposes. PESTLE is a tool that helps to identify different external factors that have an impact on an organization’s growth. The 6 letters of PESTLE denote 6 external factors of an organization. P stands for Political, E stands for Economic, S stands for Social, T stands for Technological, L stands for Legal and E stands for Environmental. Some organizations do not require to analyze all the six factors. Hence, they just do a PEST analysis.

PESTLE analysis gives a wider perceptive compared to the SWOT analysis. If you want to observe both the internal and external factors affecting the organization, then SWOT is the right tool. But if you solely want to focus on the external elements, then PESTLE will give you an in-depth view.

History of PESTLE Analysis

PESTLE was first formulated by an American scholar Francis Aguilar, around 50 years ago. Francis Aguilar was an expert in strategic planning. In 1967, Aguilar wrote a book called “Scanning the Business Environment” which first mentioned the usage of PESTLE. This wonderful tool that is currently used all around the world was discovered through the book of Aguilar. Currently, PEST is used for different purposes but significantly focuses on marketing. Different researches and studies have been published to depict the magnitude of PESTLE.

At first, Francis J. Aguilar described four factors that affect an organization. These four elements made ‘ETPS.’ Under this, he has discussed the four important elements of taxonomy which include Economic, Political, Technical and Social. Later on, he shuffled the elements and organized them in a better way. He thoroughly studies the environmental aspects and reorganized the factors as ‘STEP’ which stands for Strategic Trend Evaluation Process. Environmental scanning helped him organize the elements.

This reorganized external factor analysis of the business organization was further modified and given a new view which was called STEPE analysis. STEPE stood for Social, Technical, Economic, Political and Ecological. During different periods, different scholars have come up with their own interpretations of these factors. They gave it various names from PEST, STEEPLE, PESTLE, etc. Finally, PESTLE arrived which is currently used by millions of organizations.

PEST or PESTLE – Which to Conduct and Why?

PEST consists of the four core external elements of an organization, Political, Economic, Social and Technological whereas PESTLE analysis is broader. It describes 6 factors, Political, Economic, Socio-cultural, Technological, Legal and Environmental. Both of the tools are marketing principles that help to assess different characteristics of a business organization. Both of the tools more or less analyze the same features except for the environmental and legal aspects.

One of the key differentiating elements is the legal factor of an organization’s environment. The legal factor is necessary to broaden the scope of a business. For example, an organization in Florida has to follow the rules and regulations of the state along with the central legislation. Starting from employment laws of the state to taxation, a business has to deal with several legal issues.

Another differentiating factor between PEST analysis and PESTLE is the environmental element. Environment-related laws that affect a business fall under this factor. For example, EPA (Environmental Protection Agency) oversees the organizations and follows their activities. Organizations have to maintain eco-friendly ways of disposing of waste. If any organization fails to do so, EPA will hold them accountable for their activities. All of these falls under the environmental factor which is missing in a PEST analysis.

Resources to Use for Collecting Data

Creating a PESTLE by analyzing such a huge number of significant external factors is not an easy task. It can be quite overwhelming. But a lot of the time, organizations choose the considered elements. Then comes the topic of collecting data. All the data collected for PESTLE analysis have to be authentic and precise. A huge amount of irrelevant data can create confusion among the managers which will make the entire analysis pointless.

Here are some of the places where managers can collect data.

Internet

When it comes to collecting data, the internet is the first thing that comes into everyone’s head. You’ll find all kinds of data on the internet. But you will have to keep two things in mind. There are much unauthentic data available on the internet. So, you will need to cross-check them. Along with that, you will have to decide which data is relevant for your organization and choose accordingly.

Different Servers

Employment rate, age distribution, tax rate, different legislations, etc. are available on government servers. All the information available on the government websites are authentic. Organizations can collect them from these servers.

Market Survey

This takes time and money but still, it is the most effective way of collecting data. The genuineness of these data can’t be questioned. Organizations can do market research and conduct surveys to understand the perspective of the consumers.

6 Steps to Write a PESTLE Analysis

Pestle analysis can be done by anyone if the person knows some simple steps of conducting the analysis. Usually, managers of the companies conduct the analysis by observing the external elements. The analysis part is not that difficult, but collecting the data and organizing them can be a task for someone who has never done this before. Here are 6 simple steps to write a PESTLE analysis.

Choose a Company

At first, you need to choose a company if you are not working for any. PESTLE can be done on the entire organization or on a specific product. Many people think that PESTLE is only for the whole company. But this concept is not correct. Companies do PESTLE for specific products; they do PESTLE for a new venture or on old ventures that are struggling to survive. Sometimes they also do the analysis of a successful venture just to understand what better changes they can bring.

If you are an employee working for a company, then you will just skip this step as you will do the PESTLE on your company. If you are doing research on a new product then the subject of your analysis will be that product. Along with that, make sure you set the goal and expectations. What outcomes do you expect once the analysis is done? This will help you stay on track while conducting the research.

Conduct Preliminary Research (on the Company and the Industry)

The second step is to conduct preliminary research. This is the most important step. The success of the analysis will depend on this step. For this, you will have to collect primary and secondary data relevant to the industry you are working on. Primary data is the set of data that you will directly collect from the market. This can include surveying the consumers and the competitors, doing current market analysis and so on. Secondary data is the data already available out there. You will find this data on different books, websites, the internet and so on.

Usually, data for economic factors and legal factors need to be collected from secondary sources. These data are already available in the market. After collecting them, you will need to check the authenticity of those data. On the other hand, data for other elements should be collected from primary sources. For example, consider the social factor. You cannot understand the cultural aspect of a country without talking to the people of that country. Understanding the culture through the internet is not possible. Hence, primary data collection is the right way for a social factor.

Study the Competition

Competitors are one of the main aspects of PESTLE analysis. When it comes to studying the external environment of a business, competitor analysis comes at the very beginning of the list. Doing a competitor analysis is not that difficult.

First, make a list of all the competitors of your company. You can segregate them into different categories, depending on their popularity, price point, demography, etc. Then go one by one on each category. Study all the factors of PESTLE for those companies. This will help you to understand in which sector they are doing better than you and in which sector they are lagging behind. Analyzing these factors will help you gain a competitive advantage.

Make an Outline

Once you have collected all the relevant data and done a proper study on the competitors, it is time to make an outline. Create a basic outline of PESTLE where all the six elements are laid out. The 6 factors include Political, Economic, Social, Technological, Legal and Environmental. This can be done by taking a few sticky notes.

An outline will help to stay on track. Often managers include unnecessary and irrelevant data which spoils the purpose of the analysis. As a result, companies fail to achieve the desired outcome. For example, you are doing a PESTLE analysis on NESTLE. First, gather the necessary data. Do a quality check whether they are authentic or not. Then make an outline for the sequence. The outline of the PESTLE analysis is pretty straightforward.

Begin with the political factors. There are some categories that fall under each factor. Political factors, include political stability, GST, tax rate, state of the government and so on. After that, move on to the next factor which is the Economic element. This includes the economic growth rate, unemployment rate, inflation rate, etc. Then comes the social factor for which you will have to collect data personally. This includes the values, culture, age distribution, preference of the consumer, etc. After the social element comes to the technological element. This also needs the primary data on the technological progress of the market. The legal factor comes after the technological factor. This includes different legislations already implemented in the state. Finally, comes the environmental factor which includes the environment-related laws.

Making an outline will help you keep your mind clear and focused.

Organize the Findings

Once the outline is ready, it is time to organize the findings. There have to be six headings showing the six elements. All the aspects related to politics will go under the political factor. Economic growth, different fluctuation rates of the economy, etc. will go under the economic factor. All the social elements that affect the organization will fall under the social factor. New technological changes that affect the market will be included in the technological factor. Legal aspects affecting a company will go under the legal factor and finally, environmental elements will be included in the environmental factor.

Six elements should be kept separate from one another. Keeping them separate will help to understand which factor is affecting the organization’s growth and how. If you mix one factor with another, you won’t be able to differentiate between them. Organizing and categorizing the factors will help you to better understand the company.

Write the PESTLE Analysis

After you’ve gathered all the data, checked the authenticity, and categorized them, it is time to write all the factors down. You can either create a table where each column will represent each factor and each row will represent different elements that fall under the factors. This is the simplest way of presenting an organized PESTLE analysis.

You can also use different smart arts to give an aesthetic look to your analysis. Usually, when managers have to present their analysis in a meeting, they use Microsoft PowerPoint to create an attractive-looking PESTLE analysis. There are thousands of templates available on the internet. You will just have to put your findings on those labeled boxes.

Besides these two methods, there are websites, for example, Custom Writings, which will do the entire analysis for you. Some websites just require the data. You will have to give the data and the website will do the analysis for you. On some websites, you won’t have to give the data. Just fulfill some requirements and they will present a complete PESTLE analysis for you. You will have to pay some money in return.

Six Elements of PESTLE Analysis

PESTLE analysis thoroughly describes the six external elements of an organization. These elements are briefly described in the following part.

Political Factors

Political factors include the intervention of the government in different industries. Whether it’s a public industry or a privatized sector, all of them have to follow the rules implied by the government. Along with that, the current political scenario of a country deeply affects the business of any organization. This includes multiple aspects starting from policies to political stability, corruption, trade restrictions, taxation, etc.

In order to build a solid infrastructure, an organization needs somewhat the help of the government. Sometimes private company owners ignore the political scenario of a country. But government always has a significant impact on the infrastructure of any industry. If the political situation of a country is not stable, it might be extremely difficult to conduct any kind of business operation in that country. Hence, the political situation of a country is an important factor when it comes to establishing an organization in a market. The political factor usually includes the following:

• Rate of unemployment
• Interest rate
• Inflation
• Economic growth
• Exchange rate

Economic Factors

The economic performance of a country, as well as an organization, is determined by the economic factors of that country. The economic environment of a country is extremely important when it comes to operating an organization in any kind of market. For example, when a country is going through inflation, the unemployment rate decreases as the relationship between inflation and unemployment is inverse. When inflation goes up, the unemployment rate goes down. 

The rate of unemployment has another consecutive relation with the bargaining power of the laborers. When the unemployment rate goes up, the bargaining power of the employees goes down.  That means, whatever wage a company is willing to offer, employees will take it. Usually, the impact of economic factors is more of a long-term scenario. Because economic factors affect both customer’s purchasing power and the seller’s supply chain, the impact stays for a longer period.  Depending on that, companies and industries set their prices. Economic factors include:

• Growth of economy
• Inflation Rate
• Disposable income of the customers
• Interest rate
• Rate of unemployment

Social Factors

The external environment of an organization consists of multiple aspects which include the demographic scenario, customs of the consumers, characteristics of the people, values of the society, culture, and so on. It depends on where the organization is situated. For example, the population of the United States will never want the same things that the people of India will require. This is because of social factors.

Thus, when an organization enters a new market, it needs to study the social elements. Such as, the trends followed by the people of that country, the growth of the population, income of the people, age range, taste, career choice, consciousness regarding health, the lifestyle of the people, etc. play a vital role when it comes to selecting the right marketing mix for the organization.

Along with that, an organization needs local workers for production and manufacturing purposes. Studying the social factors help the higher authority to better understand the mindset of the local workers. The social factors include the following:

• Attitude towards career
• Rate of population growth
• Consciousness regarding health
• Age distribution
• Culture
• Value
• Perception

Technological Factors

Innovation is a must for sustainability. Any organization needs to spend on the research and development sector in order to sustain in today’s market. If a company is not technologically advanced, it will be difficult for them to survive in the industry.

Whatever innovation a company brings can work in favor or completely go against the strategies. The technological element consists of multiple factors. Starting from incentives regarding the technology, different levels of innovative ideas, awareness related to technology, research and development, automation process, etc. of the industry.

All of the mentioned factors play an important role in taking decisions on whether a company should enter into a specific industry or not. It also helps a company to decide whether they should launch a new product or not, and what product will be accepted by the consumers. Studying the technological state of the competitors also helps an organization ensure future growth.  The technological factors include:

• Research and development activity
• Automation process
• Technological change
• Change of technology

Environmental Factors

Environmental factor has become a recent phenomenon. Because of the scarcity of different elements and raw materials, the significance of environmental safety is becoming more vital. The government along with the organizations are becoming aware of the carbon footprint. Hence, different governments of different countries have set a target for the carbon footprint. Organizations need to maintain the given target. The target is set according to the environmental scenario of each country.

Environmental elements usually consist of the aspects revolving around the environment. For example, the climate, changes in the climate, industries that are affected because of those changes, etc. Many people think, about how can climate change affect an industry. Environmental aspects have a vital impact on several industries. Such as the farming and agro-industry, tourism industry, insurance business, etc. Climate change directly or indirectly affects these industries.

Companies are nowadays more involved in environmental factors. Which include:

• Condition of the weather
• Temperature
• Environmental pollution
• Climate change
• Calamities such as tsunamis, earthquakes, tornadoes, etc.

Legal Factors

Legal factors in many countries collide with political factors. All the elements that fall under the legal factor are usually included in the political factor. But the legal factor is more concentrated on the laws of particular states. It focuses on the legislation implied by the government and the higher authority that an organization has to follow at any cost.

Gender laws, human resource laws, antitrust laws, customer protection laws, employment laws, discrimination laws, copyright laws, safety laws, etc. fall under the legal factor of PESTLE. In order to run their business in a state, a company has to follow all the laws practiced in that state.

Many organizations operate globally. In that case, the scenario gets a little tricky. Usually, the ventures of that company have to follow the rules of the country they are operating in. Along with that, they also need to follow the basic rules followed by the headquarters.

As legislations change from time to time, organizations have to be aware of the changes. They need to bring changes as soon as they get the notice. For that reason, companies usually have legal advisors. Legal elements of PESTLE include:

• Regulations regarding different industries
• License and permit
• Employment law
• Gender law
• Discrimination law
• Consumer protection law and so on

Advantages of PESTLE Analysis

Organizations use PESTLE to analyze the potential business threats and take action accordingly. Observing the different factors of PESTLE help the companies attain the much-needed advantages. This advantage certainly helps the organization to come up with innovative ideas for product development, promotional strategies, choosing the right target group and so on.

The advantages of PESTLE cannot be described in a short paragraph. But here are some of the significant advantages that PESTLE gives to an organization.

Cost-Efficient

Doing a PESTLE analysis does not cost any additional money. It just requires the time and effort of the managers. With the right and relevant data, PESTLE can be simply done in a paper. Depending on the necessity of the organizations, the frequency of the analysis can be decided. But the cost wouldn’t increase. PESTLE can be done by anyone as it does not take any expertise. Hence, it is quite cost-efficient.

In-depth Knowledge

PESTLE is the most important analysis that every organization needs to conduct. Because there are multiple factors that affect an organization’s business. Doing a PESTLE analysis helps the managers identify all those factors. It also helps to understand, which factors are positively affecting the organization and which ones are not working for the business.

Along with that, PESTLE clearly depicts the area for improvement. For example, a company has developed a product that failed in the market. Conducting a PESTLE analysis will help the managers understand the reason behind the failure. Depending on that, they will be able to take meaningful decisions.

Monitoring the Product Market

A lot of people think that PESTLE is an analysis of the entire organization. But this is not true. PESTLE can be done for a specific product. It can be done to understand the potential impact of a certain marketing campaign or a strategy. PESTLE gives an opportunity for further development.

Pestle gives organizations insight into the market. It helps the organization understand what new products they can bring to the market, and what the consumers want from the market and from them.

For instance, if you get to know that the young generation is more interested in budget-friendly devices, it helps you segregate your products accordingly. You’ll be able to set the right target group for your product. Along with that, knowledge about the market will help you come up with marketing strategies that will engage the audience and bring them to your company.

PESTLE also helps to monitor the changes in the market. How the prices are fluctuating, which products were bringing profit previously and which ones are bringing now. Depending on these fluctuations, companies can take decisions.

Utilize the Opportunities

Opportunities are needed to ensure the growth of a business. PESTLE helps a company to depict those opportunities. Analyzing the external factors thoroughly helps a business institution to be aware of their opportunities and take decisions by keeping those in mind.

For example, when entering a new market, PESTLE helps the company understand the viewpoint of the consumers of that market. It also gives an in-depth knowledge about the market depending on which the company can set its effective marketing strategies.

But before doing the PESTLE, the managers of the organization need to be specific. They need to first find out, why they want the information, what goals they want to achieve and what are their expectations. Clearing these attributes at the beginning will help them gather relevant data and get better output from the analysis.

How a PESTLE Analysis is Different from a SWOT Analysis?

PESTLE and SWOT analyses are used for ensuring the growth opportunities of the business. But the key difference is, that SWOT is done to evaluate both external and internal elements of a business environment. SWOT stands for Strength, Weakness, Opportunity and Threat. It analyzes the internal strengths and weaknesses of the company along with the external opportunities and threats. On the other hand, PESTLE is done to only evaluate the external factors.

A company can depict its current market position by doing a SWOT analysis but when it comes to understanding the effect of external factors on the business environment, PESTLE is the right choice. If an organization wants to expand its business, doing a PESTLE analysis will help to get a piece of in-depth knowledge about the market.

PESTLE and SWOT both are very important for an organization. It is better to conduct a PESTLE analysis first as it will help to know about the external factors and set the target accordingly. Once the higher management gets a good perception of the outside market, they will be able to implement that knowledge in their business operations. If the goals are set properly, conducting business operations smoothly wouldn’t be an issue. SWOT analysis should be done after the PESTLE as it shows both the strength and weaknesses of the business.

Bottom Line

PESTLE analysis is extremely important for both professionals and students. It helps organizations to understand their current situation and also find out where they need to improve. Along with that, it helps a student to better their academic curriculum as they are getting in-depth knowledge.